Latest Crypto Crash Caused By Bitcoin Civil War Say Experts

Bitcoin’s USD value continued to fall this week leading to the cryptocurrency’s value dropping below $5,000 for the first time in 13 months. Bitcoin saw a fall of 14% in a 24 hour period last week, which could be down in part to the U.S. Securities and Exchange Commission’s sanctions on two crypto startups that it ruled were offering ICOs. Other major cryptocurrencies have also experienced a significant fall in value, including ethereum, bitcoin cash, and litecoin.

Initial Coin Offerings ruling

The first potential cause for the widespread sudden fall in value for cryptocurrencies is the U.S. Securities and Exchange Commission’s decision to classify ICOs as unlicensed securities, meaning that those offering such assets were breaking the law and must pay fines as well as restitution.

While some are arguing that the SEC’s intervention is long overdue, the commission had been taking a back seat in terms of overseeing and enforcing regulation within the crypto market until now. However, the decision has certainly made some industry insiders question the viability of the market in this period of uncertain regulation. The decision by the SEC will not come as a surprise to many, but it may well have been enough to spook some investors who could sit tight on crypto until clearer regulations are outlined by not only the U.S. government but lawmakers across the globe also.

Bitcoin Cash Fork

But the unrest could have come from loyal investors in Bitcoin, torn between two coins. On the one hand is Bitcoin Cash ABC while backing the other, Bitcoin Cash SV, is the (self-professed) Satoshi Nakamoto himself Craig Wright. This fork is the divisive element cryptocurrency could do without.

Developers of Bitcoin ABC included a so-called checkpoint that forces miners to include the first Bitcoin Cash ABC block in any chain, without it the chain is considered invalid by the software client. There are other software options for users, and they can opt out of the checkpointed version, but it opens the risk of another split taking place between a checkpointed Bitcoin Cash ABC and a non-checkpointed Bitcoin Cash ABC.

This latest fork renewed fears that Bitcoin Cash would become centralized, and said fears are thought to be at the heart of the fall in the value of Bitcoin Cash.

However, it is not the first fork for the cryptocurrency, and the changes that took place in the past were also steeped in controversy but did not cause the type of fall in value observed this time. On the drop, Jehan Chu, Co-Founder & Managing Partner at Kenetic.Capital commented: "Bitcoin’s previously solid price anchor was unmoored by the recent Bitcoin Cash fork and is unlikely to recover anytime soon. Craig Wright’s antics have exposed the fragile relationship between decentralized technology and the outsize influence their figureheads wield. Until blockchain technology proves more useful than the people behind it, price levels are unlikely to remain sustainably high."

Nvidia and Advanced Micro Devices

The third potential contributing factor to the sudden drop in value is the disappointing results announced by chip-makers Nvidia and Advanced Micro Devices, both of which are leading suppliers of hardware for cryptocurrency miners. The decline in sales has been seen as an indicator of a fall in levels of interest in crypto mining. The biggest question surrounding this is whether miners caught wind of the upcoming crash and stopped investing in hardware, or if the decline in hardware sales caused investors to question the long-term interest in cryptocurrency mining. Nvidia’s share prices fell to a 16-month low following the announcement of the dramatic fall in sales and the cryptocurrency crash. It remains unclear if the fall in chip makers’ sales is a symptom or a cause of the crash, but there is a definite correlation between both significant events in the cryptocurrency market.

Market insiders’ opinion

Industry experts have gathered together to analyze the recent fall in cryptocurrency value. The crash has been widely attributed to the Bitcoin Cash fork, but some also believe it could be due to an inevitable bubble burst that has come after a period of unsustainable growth.

Market makers are finishing the cycle. Currently we are sitting under "the mean" or fair value of Bitcoin, which means that we are in the last bearish phase of the cycle called “despair”. After that we should see a market reversal and start a new cycle. How far we will fall is still a question, but a fact is that when Bitcoin would fall to $5,000 it would have lost 75% of its value top to bottom. That seems to be fair considering that a market loses less value every other cycle in the process of becoming mature. Last cycle Bitcoin lost 87% top to bottom (2014), but that was an entirely different market environment and industry."

Michael Jeoung, CEO of Trustverse also believes the fork is in part responsible, saying:

Crypto Civil War erupted from Bitcoin cash hard folk between ABC and SV (Satoshi Vision) has been one of the cause for the deep impact for the crypto market melt down and many investors are suffering from the incident. More importantly, this battle between ABC (Jihan Woo) vs. SV (Craig Wright), has no consensus from the public nor the DAU of Bitcoin Cash token holders and this makes it serious from the ethical point of view. It is centralized and monopolized power game, where blockchain is meant to become a public, decentralized trust mechanism. Price manipulation by power game is hurting digital wealth as well as it’s future value for technology development.

First of all, wasn’t blockchain more about sharability and shared economy? More and more I feel from this industry is that many things are manipulated, information asymmetry exists larger than the modern financial market, and moreover such incident really has impacted mistrust for many entities. No product or services that ignore right or customer satisfaction fails and this civil war really implies self-interest than public’s interest. Overall cryptocurrency transactions seem to be shorted and slowing down for now. My hopeful view is that the fundamental market has not been changed."

All things considered, there will be enough people out there making use of the BCH capitulation to drive prices down across the space in what some are calling a technical move. And if the Hash war has not ended then this could cause an influx of cash, and might give way to either a price stabilization or a momentum. Either way, there could be a further drop before the currency starts to make gains.

I have worked for broadcasters such as the BBC, BFBS and the Press Association before becoming a full-time freelance journalist in 2016. Previously I had written on the FinTech sector for both national and niche publications, but it was the Brexit referendum that sparked my...